We’ve become so dependent on technology to solve our problems that it’s become difficult to admit to our own deficiencies. Who could blame us?  We’ve become cyberspace superheroes, each capable of summoning solutions with a few keystrokes. Why waste time rolling up our freshly pressed sleeves when a quick Google query can provide a “good enough” solution. “Thank you for your benevolence in posting a response to my ‘vlookup’ dilemma anonymous global citizen. I’ll be certain to ‘like’ your Facebook page this Christmas.”

Technology makes our lives easier and we love it; and so do our shareholders. We work faster, have higher output, and are better connected than any other civilization in history. The problem with this recent evolutionary adaptation is that it’s slowly replacing one of our first—the ability to communicate face to face. We bombard each other with emails and text messages, but have difficulty walking fifteen feet from our cubical to ask a simple question of our co-worker. The problem doesn’t lie in the act of communicating (we have that covered #ThankYouTwitter); it lies in our preferred medium. Electronic communication may never completely replace face-to-face interaction, but it is creating the potential for lazy business practices, especially in Human Resources and talent development.

For a moment, consider this common scenario. A mechanical engineer is handed a work order to develop a new mechanism for a machine on the most profitable product line in the factory. How do they proceed? They could complete the task without consulting a single person. They could spend a few hours sifting through solutions on the web, use that information to draft up the new mechanism, send a work order to the machine shop to have it milled, and eventually, send a request to the maintenance department to have it installed. Such a process has indeed completed the task of creating the mechanism. But what happens when the machine’s operator informs our reclusive engineer that their design placed the control panel on the wrong side of the machine, thus making it inaccessible?

Consider the engineer’s dilemma in the context of Human Resources and talent development. Who are we looking to for feedback about the mechanisms we design? Who gives us our work orders? As we slide further down the inevitable technological rabbit hole, it will become more apparent that our marching orders should come directly from our customers; in this case, our organization’s talent pool. The googlesphere will continue to make it possible to glean information about what our peers and competitors are doing with regard to talent development, but it will never tell us what our individual employees need.

Simply making an additional effort to leave the safety of our cubicles to converse with our customers won’t cut it. If we want to be prepared to meet their needs in full, they need to know us; and not just our titles and in which area of the building our cubicles reside. They need to know us by name. HR practitioners must become the doctors and nurses of our organizations, tasked with identifying the ailments (training, work-family conflict, poor leadership, etc.) of our workforce, prescribing the solutions, performing the operations, and promising follow-up visits. If a hospital decided to have their nursing staff send emails to admitted patients, rather than visiting their bedsides on a regular basis, might that have some impact on the mortality rate of those patients?

For HR practitioners, the key to this approach lies in the direct application of the doctor-patient interaction process. It’s not the patient’s responsibility to diagnosis their condition; if they could do that they wouldn’t need a doctor. The patient simply conveys their symptoms and hopes their doctor has the proper KSAs to provide an accurate diagnosis and solution. But what happens when the patient exhibits symptoms unfamiliar to their doctor? In the short term the doctor will likely look to colleagues for help in diagnosing the patient’s condition. In the long run, the doctor may choose to research the topic further, becoming more familiar with the condition, thus enabling them to correctly diagnosis the problem when it becomes evident. The most important aspect of this approach is that it then enables the doctor to prevent the problem from occurring in the first place by proactively prescribing solutions to their patient at the first sign of symptoms. If this approach to self-identification of KSA deficiencies works for medical practitioners, why wouldn’t it work for HR practitioners? Why can’t HR professionals identify their own KSA deficiencies through interactions with their customers, and use those insights to plan their own professional development paths?

To the HR practitioner, symptom conveyance can be as simple as seeing an employee’s physical frustration with a process or through brief conversation. For example, during a walk of the production floor an HR practitioner may see an employee exhibiting signs of distress. Upon initiating a conversation with the employee the HR practitioner learns that a new policy has made the employee’s job more stressful and has decreased their overall job satisfaction. At this point, the practitioner can intervene by working with that employee’s manager to implement a solution for reducing that employee’s distress.

The HR practitioner must be able to draw upon their KSA’s to diagnose and solve the problem, or rely on their peers to help devise a solution. Once a solution has been implemented, most would consider the fire “extinguished” and move on to the next project. Doing so would only reinforce the reactive status quo and would not improve the HR practitioner’s ability to diagnose or proactively prevent the problem. To prevent this cyclical firefighting, the HR practitioner needs to document their customer interactions, identify their own KSA gaps in the problem solving process, and devise a way to rectify those gaps in the future. The aggregate of these documented KSA gaps would be the foundation for the HR practitioner’s professional development plan, making the plan uniquely tailored to that individual. Refer to Exhibit A for a visual description of this process as it relates to HR practitioners.

Documenting and self-reporting KSA gaps is not limited to interactions between HR practitioners and organizational talent. It could also be done after the completion of novel or complex tasks. Imagine a newly hired HR practitioner who is asked to complete a report using an esoteric piece of software. After completing the task, the practitioner documents the interaction and reports difficulty in using the software. That documented KSA gap can later be used during the creation of that employee’s unique professional development plan. Additionally, the comparison of information reported by all HR practitioners could uncover broader organizational deficiencies, such as the identification of poor leadership in a specific department or an unclear internal policy. The immense amount of information collected through this process over the course of a fiscal year could be used by organizational leaders to identify focus areas for improvement events and could shine light on underlying organizational problems. For example, if several HR practitioners document instances of employee dissatisfaction in the accounting department, organizational leaders may choose to further investigate the underlying causes of those complaints.

The success of this approach will ultimately be contingent upon two things. The first is the ability of HR practitioners to accurately identify their own KSA deficiencies. It’s difficult for most people to admit their own shortcomings; HR practitioners are no exception. Without an honest analysis of the interaction and an unbiased report of their own KSA deficiencies, the accuracy and utility of the information collected will suffer. The second contingency deals with the HR practitioner’s ability to connect with the talent pool. As with any good doctor, HR professionals should be outgoing, approachable, honest, and trustworthy. Organizational talent will be less inclined to openly communicate with unapproachable or dishonest HR practitioners; these attributes should be mitigated as much as possible.

The utilization of the doctor-patient interaction process in the context of Human Resources and talent development is not a perfect approach, but it is a step in the right direction.  The continued reliance on simple survey data is antiquated, slow, and in dire need of reform. All the information needed to prepare HR practitioners is available, as it’s always been, buried within the minds of the organizations’ talent pool and its processes. As technology shifts the needs of the talent pool, it’s the responsibility of HR practitioners to identify those shifts and adjust their KSAs appropriately. HR practitioners must observe, connect with, and engage the talent pool in open conversation. Without doing so, HR practitioners will never obtain the KSAs required to meet the ever-changing needs of their customers. ℵ

Ryan Starkweather is a candidate in the Master of Human Resources and Labor Relations (MHRLR) program at Michigan State University. He is currently employed as an Analyst for the Michigan Department of Education, Office of Educational Improvement & Innovation. Ryan’s interests lie in continuous process improvement initiatives, talent development, and talent acquisition. This essay received the second place prize in the Cornell HR Review 2012 Essay Competition.

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Human resources professionals today are faced with information on dozens of major workplace trends and expected to prioritize them appropriately, develop an HR strategy to respond, and then execute it for the benefit of the organization. This is no easy task – and it is not getting any easier. The next decade will undoubtedly bring major change to how businesses are structured, how they are led, and how these changes affect employees and shape their experiences. The most pressing concerns will vary from company to company. However, three trends – women in the workplace, increased focus on employee empowerment, and the importance of internal branding – are sweeping trends for all organizations to consider. These trends will affect the performance evaluation and leadership development areas of HR in the next ten years. A sharp focus on transformational leadership and corresponding balanced performance evaluation systems will be needed to respond effectively.

Trend #1: Women in the Workplace

Women now make up over half of the current workforce and are increasingly becoming the major breadwinners or co-breadwinners of their families.[i] Yet there is stagnant growth of women in some positions and the demographic makeup of top leadership remains largely unchanged. It is hard for women to enter the upper echelons of the workplace, as evidenced by the fact that just 3% of Fortune 500 CEOs and less than 15% of corporate executives at top companies worldwide are female.[ii] Just over 5% of executive management positions in Fortune 500 companies are held by women.[iii] A full 75% of Fortune 500 companies report no women as top earners.[iv] Organizations will have a unique opportunity in the next ten years to reconcile this discrepancy between women’s apparent advancement and the reality of an entrenched “glass ceiling.”

Trend #2: Employee Empowerment           

As companies become increasingly global they are transitioning to a “transnational” operating structure.[v] This movement “beyond the matrix” is characterized by flexibility, interdependencies through all levels, bottom-up innovation, and learning. It is less of a specific organization structure than “a concept and direction of development.”[vi] One important effect of transnational operating structures is an increased focus on employee empowerment. This is characterized by employee freedom, employee power to fully participate in organizational life, and employee knowledge of information needed to make more decisions. 74% of CEOs report being more “participatory, more consensus-oriented, and rely more on communication than on command in today’s global environment.” [vii]

Trend #3: Internal Branding          

In a recent study, well over half of companies surveyed were focusing their employer brand management (i.e. how the company positions itself to candidates) as much internally as externally.[viii] Employer branding has become a more popular topic due to an increase in the power of brands, an increase in focus on employee engagement, a tight labor market and “war for talent,” and HR seeking to be seen as a more credible business partner. Studies suggest that deliberate and careful management of employee value propositions can bring as much as a fourfold increase in employee commitment. [ix]  Internal branding also influences how employees view the company brand;[x] as employees’ values increasingly align with those of the company, internal branding can shape external branding and customers’ perceptions in powerful ways. ^[xi]

The factors that go into an internal brand are far-reaching but some specific attributes of companies deemed “best places to work” through various surveys include: a supportive, communicative, and visible leadership team that promotes honesty, integrity, respect, collaboration, and trust; a culture of high performance with an effective rewards system; and “Best Employer HR practices” such as effective performance management, corporate citizenship promotion, effective training and development, and inspired leadership.[xii]          

Transformational Leadership as a Response          

One viable option to address the above trends is to craft a leadership paradigm that focuses on transformational leadership attributes. As opposed to transactional leadership, a style characterized by offering rewards for productivity and denying rewards for a lack of productivity, transformational leadership aims to stimulate and inspire followers to reach beyond what they thought possible and elicit extraordinary results. It looks to achieve true commitment and involvement from the follower by involving his or her self-worth in the work. Four I’s characterize transformational leadership, the most studied style of leadership:[xiii]

1. Idealized Influence, in which the leader communicates the values, purpose, and organizational mission in a way that motivates respect and pride
2. Inspirational Motivation, where the leader shows visible optimism and excitement about the future
3. Intellectual Stimulation, where a leader encourages examining new ways of solving problems
4. Individualized Consideration, demonstrated by a focus on mentoring followers and attending to their development and needs

Transformational leadership is not simply an obscure form of leadership with little empirical support. Instead, it has been shown to be the most effective form of leadership.[xiv] A growing number of studies, including meta-analysis, are finding transformational leadership induces better performance than other styles.[xv] It leads to more committed, loyal, and satisfied followers. The current results show that transformational leadership’s 4 I’s are the most effective characteristics of a leader, followed by contingent reward (transactional leadership), then active management-by-exception, then passive management-by-exception, and then laissez-faire leadership.[xvi]

Transformational leadership effectively addresses the women in the workplace trend. Transformational leadership, encompassing stereotypically feminine characteristics, is an avenue to start a change in the perception of the content of leadership roles – to start an “opening up” of what it means to be a leader. Transformational leadership has been shown to be more aligned with communal qualities than with agentic qualities.[xvii] Women, in general, view job and people orientation (the masculine and feminine sides of management, respectively) as more interdependent than men.[xviii] Transformational leadership, likewise, focuses on how these two facets are interdependent. One avenue for getting more women into leadership roles is defining leader roles in less masculine terms.[xix] Thus, widespread acceptance of transformational leadership as a schema for recognizing leadership may mean more women are recognized as top leaders.         

Transformational leadership, with its unique emphasis on “Intellectual Stimulation” and “Individualized Attention,” can also effectively help address the second major trend of empowering employees. Transformational leaders show consideration for each individual they are leading and motivate them to find part of their identity in the work they are doing.[xx]These leadership behaviors will help employees become more knowledgeable, more confident in making their own decisions, and more integrated into organizational activity. Employees rely on their manager or leader to model the behaviors expected of them and give them the space to grow and develop. The transformational leadership style allows for exactly this.

Lastly, transformational leadership is needed to set the right internal brand—the third major trend discussed above. Transformational leaders inspire and motivate followers to develop and grow, feel connected to the larger vision or mission of the organization, and work with others to attain common goals. Organizations rely on their leaders to set the tone for other employees and show that the company is acting in line with their employee value propositions. The “Idealized Influence” and “Inspirational Motivation” attributes of transformational leaders will help ensure employees feel they are working under a visible and inspired leadership team that promotes honesty, integrity, respect, collaboration, and trust. This, in turn, contributes to a well-perceived internal brand and increases the likelihood of being named to prominent “Best Places to Work” lists.

Managerial Implications

To bring about this emphasis on transformational leadership in the next ten years I argue for, and predict changes in, performance management. Specifically, organizations will need to increase focus on balanced performance evaluation techniques such as 360-degree feedback[xxi] and the Balanced Scorecard.[xxii] These evaluation systems encompass transformational leadership competencies and results as well as financial profit/stock price. They take into consideration bosses, peers, direct reports, customers, and many different aspects of business. They could better identify women’s leadership potential and facilitate their development and promotion. They could better assess how well a leader is empowering his or her employees and promoting an appropriate internal brand.

A second area of change needed is in the leadership development space. Though current leadership development models and trainings within organizations encompass some elements of transformational leadership, there can be more robust education and development of transformational leadership attributes. Greater knowledge and awareness of transformational leadership among all levels of employees may be one way to effectively encourage transformational leadership in the workplace. Companies will need to get more creative with their approach to developing transformational leaders, possibly implementing systems with more varied job experiences (e.g. externships), better access to learn from more experienced organization members, and formal training where goals and results are measured and tracked over time.

Jim Collins, author of bestselling book Good to Great, says, “Those who build great companies understand that the ultimate throttle on growth for any great company is not markets, or technology, or competition, or products. It is one thing above all others: the ability to get and keep enough of the right people.”[xxiii] HR executives that care about the effectiveness of their managers and also care about empowering female leaders should put in place, or increase their dependence on, the balanced scorecard, 360-degree feedback, and revamped leadership development models. The challenge managers and executives face in adopting balanced performance evaluation systems and stressing the importance of transformational leadership is that it represents a change from the past. Many managers and executives who want the standard status quo to remain may try to keep the old systems in place. Though the coming ten years will entail difficult transitions out of old paradigms for how work gets done and who leads such work, the decade also holds tremendous potential for women in leadership, empowering employees, and creating a powerful internal brand. ℵ

Emily Tuuk is a student at Cornell University, pursuing a MILR at the School of Industrial & Labor Relations. At Cornell, she works as a research assistant for the Center for Advanced HR Studies (CAHRS). Upon graduation, she will join Dell’s HR Rotational Program in Austin, Texas. This essay received the third place prize in the Cornell HR Review 2012 Essay Competition.

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The Cornell HR Review is very pleased to announce the winners of the 3rd Annual Student Essay Competition sponsored by General Electric! Open to all students pursuing a degree with an HR concentration, this year’s competition challenged students to respond to one of three prompts, which addressed such topics as development of critical HR functional areas, “HR for HR”, and workforce planning. Prizes for the competition included $1000 for first place, $500 for second, and $250 for third.

Submissions spanned 10 different universities and a blind review process narrowed down the pool of entries to the competition’s five best. An independent panel of judges representing GE executives Jennifer Maslar, Annette Ellison, Susan Beauregard and Cornell ILR Professor Bradford Bell then placed the winning essays.

Michigan State and Cornell submitted winning essays, with Ashley Myers (Cornell MILR ’12) garnering the first place prize for her essay, Taking Business to a ‘Hire’ Level: Strategies for Workforce Planning.  Ashley responded to the prompt concerning workforce planning and was able to leverage several years experience in IBM’s HR department as well as her ILR education to compose an outstanding essay. “Thank you to all the essay judges for their recognition, time and effort. It’s an honor to have won and to have my essay published in  a publication like the Cornell HR Review”, she remarked.

Second place for the competition went to Ryan Starkweather (Michigan State MHRLR ’13), whose essay offered suggestions for enhancing the quality of HR professionals. Additionally, Emily Tuuk (Cornell MILR ’12) took home third place by composing an essay describing the value of transformative leadership in organizations.

This year’s competition had an incredible pool of submissions and CHRR would like to thank all of the individuals that took the time to submit.  The winning entries will be published in CHRR throughout April and May, and details regarding the next annual essay competition will be announced in February 2013. ℵ

Prompts

1. HR has begun to move beyond its transactional roots into a function that is demonstrating punctuated business value by becoming the “talent steward” of organizations. Describe what strategies HR functions should deploy to avoid the trap of neglecting the development of its own talent. In other words, what can HR do to best develop strong “HR for HR” culture and imperatives?
2. As companies focus on building a strong talent pipeline to drive long-term business success, what strategies can companies use to plan for their future workforce? As technology continues to rapidly evolve, how should companies ensure they are not developing talent in areas where the skills will become obsolete? What tools and methods should companies use to determine the number of people and the types of skills that will be needed to drive their long-term business strategy?
3. It is sometimes said that “the only constant is change.”  Predict how HR will change over the next 10 years by explaining important transformations taking place in at least one critical functional area of HR (i.e., recruiting, L&D, compensation, etc.)

Results

1st Place: Ashley Myers

2nd Place: Ryan Starkweather

3rd Place: Emily Tuuk

In Shakespeare’s Henry IV, the lazy and lecherous Sir John Falstaff is attacked during battle, falls to the ground, and feigns his death.  Falstaff attempts to justify his act of cowardice by explaining:  “The better part of valor is discretion, in the which better part I have sav’d my life.” [i]  By exercising his “discretion” to fake his death, Falstaff rationalizes that he is free to live to fight another day.

There is little to be lauded in Falstaff’s distorted worldview.  Yet, employers may find something illuminating in Falstaff’s value of “discretion.”  Employers can forego paying minimum wages and overtime compensation if their employees qualify under one of many exemptions provided for under the Fair Labor Standards Act (FLSA) or its state counterparts.  The most commonly invoked of these exemptions — the administrative exemption — requires that employees exercise “discretion and independent judgment” in the performance of their primary job duties.

The ability of employees to exercise the requisite degree of discretion and independent judgment, however, is under attack.  Washington has been running at a record-setting pace in promulgating rules and regulations under the current and prior White House administrations.  More than 50 federal agencies currently enforce over 150,000 pages of regulations that touch nearly every aspect of a company’s operations.  These regulations do not come without a cost.  Many of these costs are, by nature, unknowable, but one cost is certain — the growing body of regulations places constraints on employees’ ability to exercise discretion and independent judgment in doing their jobs, jeopardizing their status as exempt administrative employees.

Employers, therefore, have a fight on their hands as regulatory burdens increase at a staggering pace.  Sir John Falstaff valued the discretion he exercised on the battlefield; employers, too, should prize the discretion exercised by their employees in the workplace.  It is essential to them winning the battle of preserving the exempt status of many of their employees.[ii]

Historical Background

On June 25, 1938, President Franklin D. Roosevelt signed the Fair Labor Standards Act into law to extend relief to America’s “ill-nourished, ill-clad, and ill-housed”[iii] — of which there was no shortage during the Great Depression.  The FLSA implemented two key mechanisms to provide that relief.  First, it set a ceiling on the number of hours in the workweek and mandated that employers pay a premium wage to all employees who worked in excess of that weekly limit.  Second, the FLSA fixed a floor on the wages paid to employees.

The FLSA, however, did not extend the benefits of overtime and minimum wages to all workers.   It created a series of “exemptions” from these wage and hour requirements for specific classes of employees.

No group of exemptions has become more significant than the so-called “white-collar” exemptions, which apply to those employed in “a bona fide executive, administrative, or professional capacity.”[iv]  And no single exemption is invoked more and understood less than the “administrative exemption.”   The exemption applies to the employee (1) “[w]hose primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers,” (2) “[w]hose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance,” and (3) who is “[c]ompensated on a salary or fee basis at a rate of not less than $455 per week.”[v]  Although it has been around for over 70 years, the exemption has “generated significant confusion and litigation” and “become increasingly difficult to apply with uniformity in the 21st century workplace.”[vi]

One layer of the confusion is the sheer scope of job duties that fall under the exemption.  By extending the scope of the administrative exemption to those whose primary duty is related to an employer’s ambiguous “general business operations,” the U.S. Department of Labor (DOL) created a vacuous exemption that can seemingly swallow vast groups of workers.  Federal courts have found the exemption to apply to certain sales representatives, underwriters, insurance claims adjusters, accountants, jailers, school principals, racing officials, family counselors, property managers, technical writers, fire chiefs, private investigators, event coordinators, recruiters, engineers, and securities brokers.  Administrative employees interview, inspect, negotiate, recommend, analyze, advise, evaluate, investigate, plan, network, represent, and resolve.  They might work in “tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations, government relations; computer network, internet and database administration; legal and regulatory compliance.”[vii]  It is safe to say that there is no prototypical administrative employee.  It is also safe to say that many employers “get it wrong” when classifying workers as “administrative employees.”

Part of the confusion derives from the difficulty in understanding the manner in which administrative employees operate with “discretion and independent judgment,” as required by the regulations.  The “discretion and independent judgment” language has been a source of consternation since its genesis.  In 1940, opponents challenged it as vague and called for its exclusion.[viii]  In 1949, the DOL conceded that the phrase was not “precise” and had been “misunderstood and misapplied by employers and employees.”[ix]  In 2004, when the DOL revised the regulations, it reiterated that this language had “caused confusion and unnecessary litigation” and had “become progressively more difficult to apply” with the passage of time.[x]  Still, it remains today and is a continuous source of litigation and cost for employers.

Meaning

Three key terms are at issue:  “discretion,” “independent,” and “judgment.”  Although related (and arguably overlapping) in meaning, they each provide a different focus.  The Oxford English Dictionary defines “discretion” to mean “[t]he action of separating or distinguishing[;]”[xi] “independent” to mean “[n]ot depending upon the authority of another”;[xii] and “judgment” to mean “[t]he formation of an opinion or notion concerning something by exercising the mind upon it.”[xiii]

The DOL embodies these three concepts in the current regulations defining “discretion and independent judgment” to “involve[] the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered.”  The phrase further “implies that the employee has authority to make an independent choice, free from immediate direction or supervision.”[xiv]  In summary, employees must have the freedom to distinguish among the alternative ways of performing their job and possess the authority to decide which path they will take — and do so on their own.

Regulating “Discretion and Independent Judgment”

Before the 20th century, social wrongs in this country were addressed primarily through private litigation.[xv]  At the turn of the century, during the so-called Progressive Era, the government assumed an affirmative role in resolving many of these wrongs.[xvi]  Its regulatory efforts during this era — such as the Federal Reserve Act and Clayton Act — still impact our country today.

Since that time, the government has dramatically enlarged its regulatory role.  The alphabet soup of federal agencies that currently exists, ranging from the EPA to the DOE to OSHA, enforce over 150,000 pages of rules that touch virtually every aspect of society, from the handling of hazardous waste to the type of light bulb Americans can use in their homes.[xvii]  Indeed, since 1995, nearly 64,000 federal rules have issued.[xviii]

The pace of agency rulemaking is staggering.  Between October 2010 and April 2011, 1,827 rulemaking proceedings were completed.[xix]  In 2010 alone, federal agencies issued 3,573 final rules — the equivalent of nearly 10 rules a day.[xx]  By the end of 2011, the Federal Register, the official publication that includes all proposed and final federal rules and regulations, totaled a record-setting 82,419 pages.[xxi]

And they keep on coming.  According to the spring 2011 Unified Agenda, a compendium of upcoming rules, there are 2,785 proposed or final rules on the horizon, 144 of which are classified as “economically significant” (i.e., costing at least $100 million annually).[xxii]  The army of federal agency employees needed to enforce the horde of regulations grows by thousands each year.

Apart from increasing the number of regulations, the DOL is vigorously enforcing federal labor and employment laws that are already on the books.  During the prior fiscal year alone, the Wage and Hour Division collected nearly $225,000,000 in back wages from employers — the largest amount collected in a single year in the Division’s history.[xxiii]

In particular, it is committed to ending employee misclassification.  At the end of last year, before the House Subcommittee on Workforce Protections Committee on Education and the Workforce, the Deputy Administrator of the Wage and Hour Division testified that “employee misclassification is a serious and, according to all available evidence, growing problem” that the Obama Administration is “committed to working to end.”[xxiv]  She also stressed the state and federal agencies are combining their resources, coordinating their efforts, and sharing information to achieve compliance with employee classification standards.

The Cost of Regulation

The volume of government regulations is a source of significant controversy.  The debate often focuses on the issues of cost, and specifically, the cost of the growing mountain of regulations on businesses.  A 2011 report, for example, determined that the cost for businesses to comply with federal regulations was in excess of $1.75 trillion.[xxv]

There is one regulatory cost, however, that almost always goes unnoticed — the exempt status of employees.  The exempt status of administrative employees turns on the exercise of their discretion and independent judgment.  Their ability to exercise discretion and independent judgment turns on their ability to makes decisions.  But that capacity to make decisions is diminished as government agencies load employers with an ever-growing body of rules and regulations that they must pass on to their workers in the form of rules, directives, policies, procedures, and protocols — all of which govern and circumscribe how the employees do their job.

One industry that is experiencing firsthand the cost of regulations on exempt status is the pharmaceutical industry.  All actors in this industry are subject to regulatory controls.  In particular, the relationship between sales representatives and prescribing physicians has become the focus of intense regulatory oversight.  The regulations, a product of the potential conflicting interests between these two parties, seek to prevent improper exchanges of information or gifts to influence prescription-writing and drug sales.

Drug companies have responded with guidelines and policies that govern the actions of their sales representatives.  Depending on the employer, sales representatives can have rules or restrictions on which doctors they can see, how many times they must see them, what drugs they can promote, which questions they can answer, what they can say during a sales call, what visual aids they can use, and the kind of meals or events to which they can take their doctor-clients.

There has been a cost.  Although industry practice has treated sales representatives as exempt employees for well over a half-century, this practice has come under attack in the last decade with nationwide litigation against virtually every prominent pharmaceutical manufacturer.  And one line of attack has been the lack of discretion and independent judgment sales representatives exercise due to the stringent rules imposed on them.

Among the most prominent of these decisions has been against Novartis International.  A class of some 2,500 exempt sales representatives employed in California and New York sued Novartis for unpaid overtime compensation.[xxvi]  The sales representatives challenged their exempt status, contending that their jobs merely consisted of “low-level, discretionless marketing work, strictly controlled by Novartis.”[xxvii]

The New York district court and Second Circuit Court of Appeals agreed.  On appeal, the Second Circuit determined that Novartis had imposed too many limits on the sales representatives.  It highlighted, for example, that Novartis imposed “severe limits” on what sales representatives could say in their calls with the prescribing physicians:  Novartis developed the “core message” that the representatives presented to the physicians, and the representatives could not deviate from that message.[xxviii]  Accordingly, the Court of Appeals held that the sales representatives did not sufficiently exercise either discretion or independent judgment, depriving them of their exempt status under the administrative exemption.[xxix]

Following this decision, after litigating the wage-and-hour class action for nearly six years and certainly incurring millions in attorneys’ fees, Novartis decided to settle.  On January 25, 2012, a New York federal district court issued an order granting preliminary approval of a $99 million proposed settlement arising from the sales representative litigation.[xxx]

Managing and Maintaining Discretion

The pharmaceutical industry is only one of many currently fighting to keep its head above regulatory waters.  The web of regulations issuing from government agencies is entangling more and more employers and entangling them in new and different ways.   In these sectors of the economy, employers are increasingly vulnerable in their reliance upon the administrative exemption.  But there are legal principles upon which employers can build a foundation for discretion and independent judgment to survive and even thrive in the workplace.

First, the fact of regulation — even heavy regulation — does not preclude the exercise of discretion and independent judgment, according to many courts around the country.  In the last decade, there have been several notable decisions involving professionals who work in the nuclear power industry, which is subject to intense government oversight.[xxxi]  In two of these cases, the Sixth Circuit Court of Appeals rejected the employees’ argument that “the heavily-regulated nature of their primary job duty prohibit[ed] their exercise of discretion and independent judgment.”[xxxii]  Instead, it analyzed the existence of discretion and independent judgment within the constraints of the regulations.  Although it acknowledged that the practical effect of the regulations was to minimize discretion, it held that the employees worked under circumstances that allowed them to independently determine the manner in which they performed their job.  The Sixth Circuit highlighted the distinction between providing an employee a “guideline” on how to perform his or her job and providing “an encyclopedia of strict requirements.”[xxxiii]

Likewise, despite regulations applicable to the pharmaceutical industry, federal courts have found that sales representatives exercise discretion and independent judgment within the limits set by those regulations.  For example, the Third Circuit Court of Appeals has determined that sales representatives exercise discretion and are exempt administrative employees because they are free to determine the manner in which they approach physicians, “whether it be through access meals, peer-to-peer meetings, or other means.” They also have the ability to alter their marketing strategy based upon their circumstances.[xxxiv]

Second, under the FLSA and many state counterparts, an employee need only exercise a modest degree of discretion and independent judgment to qualify as an administrative employee.  Before August 2004, an exempt administrative employee had to “customarily and regularly” exercise discretion and independent judgment in performing his or her primary duties.[xxxv]  The Wage and Hour Division, however, removed the “customarily and regularly” language from the discretion and independent judgment prong in its 2004 amended regulations.  Now, under federal law, an exempt administrative employee’s primary duties need only “include[]” the exercise of discretion and independent judgment.[xxxvi]

Third, the DOL has determined that certain duties inherently involve the exercise of discretion and independent judgment. Employers can strengthen the exempt status of their employees by ensuring that their primary duties include two or more of the following:

• formulating, affecting, interpreting, or implementing management policies or operating practices;
• carrying out major assignments in conducting business operations;
• performing work that affects business operations to a substantial degree;
• committing the employer in matters that have significant financial impact;
• waiving or deviating from established policies and procedures without prior approval;
• negotiating and binding the company on significant matters;
• providing consultation or expert advice to management;
• planning long- or short-term business objectives;
• investigating and resolving matters of significance on behalf of management; and
• representing the company in handling complaints, arbitrating disputes, or resolving grievances.[xxxvii]

Although this list is not exhaustive, there is safety for employers in staying close to the regulations.

Fourth, the employee must exercise discretion and independent judgment as to “matters of significance.”  Courts recognize that nearly all employees exercise some discretion.  Most employees, for example, exercise discretion in choosing the order in which they perform their job duties.  But to qualify for exempt status, the discretion and independent judgment exercised must be substantial in that it has some importance or consequence for the employer.[xxxviii]  Thus, employers can shore up the exempt status of their administrative employees by ensuring that they are making decisions that can and do have an impact upon the business.

Finally, the fact that the employee does not have sole or final authority to make decisions does not disqualify the employee from exercising discretion and independent judgment.   The exempt administrative employee’s decision may be subject to further review and even subject to reversal without jeopardizing his or her exempt status.  So long as the employee is at least making recommendations to his or her superior, the employee can still exercise sufficient exercise and independent judgment to fall under the exemption.[xxxix]

Despite the tsunami of regulations burdening so many sectors of the economy, employers can preserve the discretion and independent judgment of their exempt workers.  So long as they structure the work of their employees to include the ability and authority to independently act in a manner that has a real and substantial impact on the enterprise, employers can keep the administrative exemption alive in the workplace.

Conclusion

The maze of government regulations is increasing, and the space within which employees can exercise discretion is constricting.  But discretion and independent judgment can survive regulation.  Employers can structure their policies and procedures, within the legal limits set by the applicable government regulations, to channel but not eliminate their employees’ discretion and independent judgment.  If employers enable and enhance their employees’ freedom to decide how to perform their job duties, and provide them with the authority to perform their job accordingly, employers can preserve the exempt status of their administrative employees.

For Sir John Falstaff, the exercise of discretion saved his life.  For employers, the exercise of discretion can save the exempt status of their employees.  ℵ

Blake R. Bertagna is an associate in the Employment Law Department of the San Diego Office of Paul Hastings LLP.  

NATURE OF THE PROBLEM

Hospitality Industry

The characteristics of the hospitality industry are extremely dynamic and differ from other industries. In the United States and many other parts of the world, the predominant industry is transitioning from manufacturing to service. The hospitality industry is growing—the U.S. Bureau of Labor Statistics expects the hospitality industry to add 17% in wage and salary employment, compared to the 14% for all other industries combined.[i] The nature of the hospitality industry makes it very labor intensive. Additionally, the hospitality industry has extremely high employee turnover rates. While the annual turnover rate for all industry sectors was 39.6% the leisure and hospitality sectors averaged 74.6%.[ii]

People with Disabilities

People with disabilities are the largest minority in the United States. There are approximately 50 million people with a disability, and about 10.4% of working-age individuals have disabilities.[iii] Despite these large numbers, the employment rate of working-age people with disabilities in the United States is 39.5%, less than half that of their counterparts without disabilities (79.9%).[iv]

In the upcoming years, a greater portion of the available workforce will have a disability for four main reasons: medical and technological advances as well as demographic and legislative changes. Medical advances have enhanced the ability to diagnose disabilities earlier, and better treatments mean more people with disabilities can work. Second, technological advances in assistive technology allows for more disabilities to be effectively accommodated at an affordable price.[v]

Third, demographic changes, including the aging US population and returning veterans, are increasing the number of individuals with disabilities. People over the age of 65 are four times more likely to have a disability than those aged 21 to 64. While many people over the age of 65 are on their way to retiring or already retired, a large portion of this population is staying in the workplace beyond the traditional retirement age. Also affecting demographic change are the returning disabled veterans who are reentering the workforce as armed conflicts abroad begin to wind down. Lastly, legislative changes over the definition of “disability” impacts the number of employees considered disabled. For example, the ADAAA’s expanded definition of disability allows more people to be covered by the ADA and receive accommodation.[vi]

Employees with Disabilities in the Hospitality Industry

Many sources state that a shrinking labor force will be one of the biggest challenges facing the hospitality industry in the upcoming years.[vii] Due to the economic crisis, unemployment has risen, making it easier for employers to find and retain talent. When the economic crisis eases, the workforce and demographic forces that are in place will kick into high gear as baby boomers begin exiting in large numbers. While stories about layoffs feature prominently in the media, many sectors, including hospitality, will experience a talent shortage in the coming years. Smith and Clark estimate the service industry will create 5 million new jobs from 2004 to 2014.[viii]

Service occupations already hire the greatest percentage of people with disabilities—8.7% of workers employed in service occupations have a disability.[ix] Within service occupations, 7.8% of food preparation and serving workers have a disability. By pairing together the facts that more working-aged individuals will be considered disabled in the coming years with the knowledge of a talent shortage in the hospitability industry, it is safe to assume that the percent of workers with a disability in service occupations will be increasing. This means people with disabilities are an important upcoming source of labor. Disability inclusiveness will be a key strategy many companies should focus on when preparing for upcoming workforce changes.

THE EMPLOYMENT PROCESS

The following research findings focus on the four main parts of the employment process—recruitment, hiring, retention, and advancement. Each section summarizes key points from available literature and is supplemented by personal accounts. Suggested best practices are included for each stage.

Recruitment

The majority of literature places the most importance on the recruitment and hiring of people with disabilities. Active recruitment of individuals with disabilities is extremely important in creating a diverse workforce. Employment agencies can provide valuable services to companies wanting to recruit people with disabilities. Lastly, one way to make recruiting people with disabilities a top-down commitment within an organization is to include “disabilities” in corporate diversity plans.

Active Recruitment: Service firms are more likely to actively recruit those with disabilities than are manufacturing firms. In a survey of 320 hospitality companies, 22.8% of large companies actively recruit people with disabilities, while medium-size and small-size actively recruited people with disabilities less frequently (17.7% and 12.4%, respectively). This is because larger companies have greater recruiting resources at their disposal.[x]

While it may be easier for large companies to actively recruit people with disabilities, interviewees demonstrated that small companies could just as effectively do the same. Whenever Kerry Lee, the general manager of The Murray Hill Inn and Suites (a 76-room property) has an opening in an entry-level position, he notifies a local employment agency that works with people with disabilities.[xi] Other smaller hospitality companies should follow this example of tapping into this underutilized workforce.

Employment Agencies: Employment agencies offer valuable services by effectively pre-screening candidates to make sure they are qualified for the job. Mr. Lee stated he has worked with Our House NJ, a local employment agency, to hire 15-20 employees with disabilities over the past 20 years. Some of these hires have worked as many as ten years for the company.[xii] Although employment agencies can provide hospitality companies with valuable resources, they are not widely utilized. Because the various employment agencies often lack an umbrella organization, employers find it cumbersome to maintain contact with many agencies at once. Human resources professionals would prefer to develop a relationship with one or two people instead of dealing with a different person from each agency.[xiii]

Employment agencies should be on the front-line combating concerns about hiring workers with disabilities. Agencies could increase employment by generating awareness in hotels and restaurants about the benefits of hiring people with disabilities and by offering assistance in determining appropriate accommodations. Other services offered by employment agencies, including on-the-job coaches, are a valuable asset for people with disabilities during the training process.

Corporate Diversity Plans: Commitment from top management is the best method for reducing employment and advancement barriers.[xiv] Though most organizations have a diversity plan, only 40% include disabilities.[xv] A few hospitality companies are noted for their top management commitment to employing people with disabilities. Marriott International is considered to be a leader in disability initiatives by both employing people with disabilities in its own company and founding a non-profit organization to aid special education high school graduates with job placement.[xvi]

If companies want to utilize the available labor pool of people with disabilities, there needs to be top-down support. Including disabilities in corporate diversity plans will demonstrate that top management is committed to employing people with disabilities. This commitment will trickle down to managers and supervisors as they make recruitment and hiring decisions.

Hiring

Human resources professionals in the hospitality industry hold many of the same concerns about hiring people with disabilities as professionals in other sectors—most notably inability to perform the work and accommodation costs. Beyond these concerns shared by most industries, the hospitality industry provides a unique set of hiring challenges. First, the broader issues revolving around hiring people with disabilities will be discussed, and then particular attention will be paid to specific issues in hospitality.

Nature of the Work: The most commonly cited challenge in hiring people with disabilities was the “nature of the work.” Of the 320 hospitality and leisure companies surveyed, 77% believed that people with disabilities would not be able to do the work.[xvii] In the same survey, 55.7% of companies were concerned that employees with disabilities lack experience and skills. These percentages reflect common misconceptions about employing people with disabilities. Labor pool statistics in Canada show that the working age people with disabilities (ages 21-64) are the least likely to have severe disabilities.[xviii] Unemployed people with disabilities also tend to have very high levels of education, demonstrating that, as a whole, they are well-educated and qualified to work.[xix]

Despite the stereotype that people with disabilities are not qualified or cannot work as hard as employees without disabilities, employers consistently rate them average or above average in performance, quality and quantity of work, flexibility, and attendance.[xx] Mr. Lee stated that employees with physical or cognitive disabilities at his hotel perform at the same (or higher) level as the rest of the employees following adequate training.[xxi]

Accommodation Costs: Many surveys cite that a top concern of employers is the potentially high cost of providing reasonable accommodations to employees with disabilities.[xxii] In a survey of 320 hospitality and leisure companies, 69.3% cited “actual cost of accommodation” as a challenge in hiring people with disabilities.[xxiii]

Although the majority of hospitality companies were concerned about the costs of accommodation, research shows that most accommodations are “low cost”. A Job Accommodation Network survey found that 49% of reasonable accommodations cost nothing and 78% cost less than $500.[xxiv] There are also three tax subsidies for private companies to use towards the cost of reasonable accommodations.[xxv]

Unionized Hotels: In the United States, unionized hotels are often concentrated in large, urban cities. Unions represent roughly 12% of all U.S. hotel workers. In unionized cities, about 35% of hotel workers are organized. In cities like Las Vegas and New York, which are heavily unionized, approximately 90% of hotel workers are unionized.[xxvi]

This concentrated number of unionized hotel properties could create a barrier for employing people with disabilities. Seniority rights—one of the benefits of belonging to a union—are trumped by the ADA when the accommodation options include moving an employee to an open position despite a lack of seniority.[xxvii] This and other collective bargaining agreement stipulations could create potential conflicts between the ADA and NLRA. When accommodating an employee with a disability, a human resources professional should work with the union to find a reasonable solution to prevent jeopardizing union relations.

Physical Appearance: Employment agencies describe the hotel industry as having a preference for employees that are young and considered physically attractive.[xxviii] According to a study by Nickson et al., the appearances, physical looks, and self-presentation skills of customer facing employees were more important to employers than hard or technical skills. Physical appearance as a selection criterion might be a barrier to people with disabilities wanting to work in the hotel industry. This is because people often view themselves, or are viewed by others, as being limited in their aesthetic and self-presentation skills due to their disabilities.[xxix]

Although the aforementioned research demonstrates people with physical disabilities may face employment barriers because of the preference for physically attractive employees, other research contradicts this. Customers favor companies that hire and accommodate employees with disabilities as shown by the fact that 93% of customers surveyed said they would prefer to patronize a business that has people with disabilities in its workforce.[xxx] This statistic shows that customers are willing to change their spending patterns based on a company’s employment of people with disabilities. This could be an impetus to place employees with disabilities in visible customer service roles.

Multi-Tasking: In many hospitality environments, employees are expected to multi-task on a regular basis. Some employees, when necessary, work far outside of their job description (e.g., cover shifts in a different department). This necessary flexibility can be a barrier to employment for people with disabilities. While an employee with a disability may be able to complete the essential functions of their job (with or without accommodation), they may or may not be able to multi-task or “pitch-in” to help out in a tough situation.

Companies allow employees with disabilities the flexibility to get their job done in a variety of different ways. If employees with disabilities are expected to work in different departments, managers should plan in advance and have reasonable accommodations for those tasks on hand. For example, if a front-desk employee with a visual impairment may be expected to work at the concierge desk, that computer should also be preemptively set up with the necessary assistive technologies.

Part-time Work: Employment in most parts of the hospitality industry revolves around part-time and temporary/seasonal employees—these employees meet the fluctuating needs of the hotel without committing to the extra costs of hiring a full-time employee. The Department of Labor estimates that two out of five employees in the hospitality industry are part-time employees—more than twice the proportion for all other industries.[xxxi] This flexibility necessitated by the nature of the hospitality industry could be a barrier to employment for people with disabilities because part-time employees usually receive limited benefits.[xxxii] This could dissuade people with disabilities (some of whom may need full benefits to cover the cost of medication) from applying if employment means forgoing full governmental support for medication.

While the use of part-time and temporary employees is unlikely to change, companies in the hospitality industry can find reasonable ways to accommodate the needs of people with disabilities. For example, companies can set-up their benefits plan in a way where employees with disabilities will not lose government assistance for necessary medication.

Retention

Once people with disabilities are recruited and hired, it is important that certain measures be taken to ensure adequate retention rates. Managers’ attitudes play a huge role in the retention of people with disabilities. Also, Human resources departments with limited staffing can contribute to the difficulties in receiving appropriate accommodations. Lastly, the availability of accessible transportation can determine if an employee with a disability will be able to retain their job.

Role of Managers: One of the key factors that influence the retention of people with disabilities within the hospitality industry is the receptiveness of hotel managers to accommodating the needs of employees with disabilities. A survey conducted within the Canadian hotel industry stated, “top managers are the key decision makers whose support is crucial in the development and implementation of programs and initiatives tailored toward the attraction and retention of persons with disabilities.”[xxxiii] When employees with disabilities have been properly accommodated, studies show they exhibit high job retention, which directly benefits employers. Once the company makes that initial investment to train and accommodate a disabled worker, they are more likely to gain a reliable and loyal employee. That loyalty will save them from the costs associated with the high turnover rates prevalent within the hospitality industry.[xxxiv]

Mr. Lee noted the flexibility and accommodations that hiring managers in the hospitality industry need to provide to workers with disabilities in order to successfully retain them.[xxxv] At his hotel, an employee named Jeannie with Down syndrome worked at the hotel for a while at repetitive tasks such as laundry folding. Though she was well-suited to perform the tasks, she desired customer interaction. So, through a process of trying out several positions, the hotel was able to place her in a job that she was not only well qualified for but that also gave her the satisfaction that she desired from work. The process undertaken by the managers at the Murray Hill Inn & Suites should serve as a model for the interactive process that should play a role in helping to retain employees with disabilities.

Limited Human Resources Staffing: Another issue that could potentially inhibit the retention of people with disabilities is the limited human resources staff at many hotel properties. One case study stated on average “three HR employees are responsible for 358 employees.”[xxxvi]  This limited number of human resources staff means hotels may not have the time or flexibility required to fulfill the accommodation process needed to ensure the retention of workers with disabilities. This issue could be remedied by providing adequate training to human resources professionals on how to accommodate individuals with disabilities. That way, when issues arise they do not seem as daunting.

Transportation: Transportation to and from the workplace is the third major barrier to retaining workers with disabilities. Mary Ellen Mest, of the National Statler Center for Careers in Hospitality Service affirms that “reliable transportation for people with disabilities is very important [for retention]. In the first 90 days, a new hire must not be late. Calling off because of unreliable transportation may get you let go.”[xxxvii] This problem is less prevalent in urban areas where widespread public transportation is easily accessible. The high prevalence of shift work (often taking place late at night or early in the morning when most public transportation is closed) in the hospitality industry also poses a barrier to people with disabilities who are assigned to these shifts.

Issues related to transportation should be part of the considerations managers in the hospitality industry account for when they hire a person with a disability. Otherwise, managers will likely end up hiring a disabled worker just to subsequently let them go for attendance issues.  Underscoring how significant a barrier to retention transportation is, Mest states that “somehow, somewhere, there must be more work done to provide reliable transportation for PWD. When you start off your day being late, this adds to a level of stress and affects the work. It’s an understatement to say that it’s very frustrating for us here at The National Statler Center to see our graduate win the job, onboard and train, be successful, but lose the job to unreliable transportation.”[xxxviii] Employers should realize on the front end that transportation is an issue for employees with disabilities and work them to create a reasonable transportation accommodation plan.

Advancement

When examining advancement for workers with disabilities in the hospitality industry, it is important to understand that most of these employees are confined to entry-level, hourly positions. This is a significant issue because these types of positions are normally not hired with advancement in mind. Additionally, many of these service positions do not offer full-time yearly employment to people with disabilities. As a result, disabled individuals dependence on government aid increases, thereby decreasing their likelihood for independence.

Assumed Abilities of People with Disabilities: Managers within the hospitality industry make assumptions about the abilities people with disabilities and place them into lower paid entry-level positions before considering their ability to do other jobs.  These actions are informed by set ideas and stereotypes about the types of jobs that people with disabilities can perform. A research study of the hospitality industry found “there was agreement on the view that people with mental disabilities can perform tasks which are routine, which have a given order and sequence and which can be learned as a stereotype (such as kitchen tasks, photocopying, laundry, gardening).”[xxxix]

While it is true that disabilities create inherent limitations, it needs to be understood that people with the same disability can have a wide range of abilities and limitations. People with disabilities are often pigeonholed into certain types of positions without managers conducting in-depth assessments of the particular individuals.  For more advancement opportunities to occur in the industry, managers need to create them. For example, an employee with a mental disability could be given more responsibility to train other employees a task or job that they have mastered and can perform well.

Biases Towards People with Disabilities: The assumptions that managers make about the abilities of workers with disabilities stem from inherent biases and serve as a major barrier to advancement. The biases human resources professionals have about people with disabilities also extends to how they view their motivation to work. Ms. Mest, who works to place individuals with disabilities into jobs in the hospitality industry, states that “people with disabilities are no different that people without disabilities. Some people want to advance, some do not.”[xl]

Some managers within the hospitality industry do not share this view—they feel people with disabilities will be content in whatever position they are given.[xli] When asked about the lack of advancement of people with disabilities, one human resources professional stated,  “I think it’s by choice … they are happy with their jobs and they want to stay where they are.” Views such as this mean that, in the future, managers are less likely to encourage people with disabilities to seek advancement opportunities, which is a significant barrier.[xlii] Managers should not make assumptions about the desires of disabled workers and should instead provide information on promotional opportunities to all individuals. In order to promote advancement of people with disabilities, the industry should ensure workers with disabilities have access to the information about these opportunities by placing them in accessible locations and formats.

HUMAN RESOURCES CONSIDERATIONS

Human Resources Best Practices

Most literature on workers with disabilities in the hospitality industry revolves around accommodating the needs of customers with disabilities. Even though best practices for employing people with disabilities are easily found in literature, surveyed companies practiced them infrequently or not at all.[xliii] Below, the best practices for employing people with disabilities are summarized.

Recruitment:

• If resources are available, companies should actively recruit people with disabilities by reaching out to various agencies and groups within community.
• Hospitality companies should utilize employment agencies because they are a good source for pre-screened, qualified candidates with disabilities. They offer valuable services like on-the-job coaches to help during the training and initial evaluation process.
• Small and large companies alike should include disabilities in their corporate diversity plans because top management support is a driving factor for increasing the employment of people with disabilities.

Hiring:

• Employers need to acknowledge the impact of stereotypes and “take the ‘dis’ out of disability and focus on the abilities” of the candidates.[xliv]
• By realizing that the majority of accommodations are free or low-cost, hospitality companies will be less reluctant to hire people with disabilities.
• Human resources professionals should collaborate with union leaders in the event that a reasonable accommodation may alter the terms and conditions of employment. Companies that hire front-line employees based on physical appearance should realize that customers favor companies that hire and accommodate employees with disabilities.
• While employees with disabilities may be limited in their ability to multi-task or complete cross-divisional work, advance planning of accommodations could allow employees with disabilities to easily work in different departments.
• Employers should develop or arrange benefit systems to prevent part-time employees with disabilities from losing eligibility for government support for medications.[xlv]

Retention:

• Develop a system for providing and monitoring accommodations to employees. To facilitate this, all managers in hospitality organizations should be required to undergo accommodation training.
• Ensure transportation systems are in place so employees can get to and from work. Examples of transportation accommodations include creating a car pooling system or even subsidizing the cost of alternative transportation.
• Employers should aim to create an inclusive work environment that values all of the members of the organization.

Advancement:

• Managers should ensure all employees are aware of promotional opportunities. This includes ensuring information about promotions are accessible.
• Human resources professionals should view all employees, regardless of disability, the same, and should not assume who will or will not want the opportunity to advance.
• Employers should also not make assumptions about the abilities of disabled employees but should instead work to actively determine both the strengths and limitations of these employees.
• As with other jobs, human resources professionals should evaluate promotional opportunities to determine their essential functions, in order to broaden to scope of who can be considered for these advancements.

Best Practices of Hospitality Leaders: There are a few hospitality companies that act as leaders in the industry when it comes to employing individuals with disabilities. The DiversityInc Top Ten Companies for People with Disabilities 2011 has two hospitality companies—Sodexo (a food service company) and Starwood Hotels and Resorts. Ranking #9 on the list, Sodexo includes a large percentage of disability organizations in its philanthropic endeavors. In addition, their training and mentoring programs are “highly attuned to cultural competence for an inclusive organization, including people with disabilities.” Starwood, ranked #10, also includes numerous disability organizations in its philanthropy and has an active disability resource group for employees.[xlvi]

Marriott International’s Bridges from School to Work was founded by the Marriott Foundation for People with Disabilities as a program to help young people with disabilities to transition out of high school special education and into entry-level positions. The program acts as an employment agency and helps more than one thousand young adults find jobs every year. While this program does not necessarily place employees into the Marriott Corporation, it serves as an example of how dedicated hospitality companies can be in promoting the employment of people with disabilities.[xlvii]

Professional Development for Human Resources Professionals

Professional development for human resources professionals will be vital to increasing employment opportunities for people with disabilities. Human resources professionals will need training on strategies for successfully recruiting, accommodating, retaining, and advancing individuals with disabilities.

The first step towards increasing the numbers of people with disabilities in the hospitality industry will be training human resources professionals on how to target and recruit individuals with disabilities. Human resources professionals also need to be trained in the importance of utilizing job boards and publications that target people with disabilities during recruitment. Information on how to develop relationships with organizations that help to facilitate the employment of people with disabilities, such National Statler Center, will help to increase recruitment avenues. The importance of accessible job postings and materials should also be part of the training. In recruiting, human resources professionals should see the recruitment of people with disabilities as just another part in attaining the diverse workforce that companies are always striving for.

A basic understanding of the accommodation process should begin with human resources professionals understanding their obligations under the Americans with Disabilities Act. More importantly, they need to understand what the process of providing accommodations may entail. Organizations that assist with the employment of individuals with disabilities (e.g., employment agencies) could facilitate training sessions. This training should provide case scenarios of accommodation situations and walk through the key issues and approaches to providing successful accommodations.  Human resources professionals should also be aware of resources that are available to them as they accommodate employees, including the Job Accommodation Network (JAN) and the Employee Assistance and Resource Network (EARN) at Cornell University.ℵ

Kelly Donnelly is a January 2012 graduate with a B.S. from the School of Hotel Administration at Cornell University and earned a concentration in Human Resources. She previously served as Treasurer for Cornell Union for Disability Awareness. Ms. Donnelly looks forward to pursuing a career in human resources or diversity and inclusion.

Jeffrey Joseph is a student at Cornell University, pursuing a B.S. in the School of Industrial and Labor Relations.

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The legality of unpaid internships has been recently examined in the media with news of Harper’s Bazaar’s former intern Xuedan “Diana” Wang filing suit against the Hearst Corporation on February 1, 2012.[i]  Ms. Wang was “head intern,” responsible for supervising eight interns in her charge.[ii]

As intern to the magazine Harper’s Bazaar, she worked 40 to 55 hours weekly transporting clothing to public relations firms as an unofficial messenger service.[iii]  Ms. Wang is part of a class action lawsuit against the Hearst Corporation seeking back pay for compensation of five months of unpaid labor.[iv]

Nationally, the Department of Labor (DOL) increased its investigations of private workplaces upon reports of employers’ exploiting the use of unpaid internships.[v] As of 2008 the National Association of Colleges and Employers estimated that the rate of graduating students obtaining internships has increased from 17 percent to 50 percent since 1992.[vi]  Officials in Oregon and California have instituted investigations, and even fined employers, pursuant to the large increases of unlawful and unpaid internships.[vii]  The DOL’s acting director of the Wage and Hour Division (WHD), Nancy J. Leppink, issued a statement in the New York Times saying, “If you’re a for-profit employer or you want to pursue an internship with a for-profit employer, there aren’t going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law.”[viii]

The increased focus of the DOL in regard to investigating the status of interns or trainees is met with a significant challenge given that there currently is no clear law informing employers on the employee status of interns or trainees in the private workplace.[ix]  At this point there are three different areas of law governing employment jurisprudence of interns and trainees: (1) the Fair Labor Standards Act (FLSA); (2) United States Supreme Court case law; and (3) the WHD interpretive guidelines.

First, the FLSA only speaks to medical interns.[x]  However, courts broadly interpret the FLSA to mean that employee status to interns and trainees is precluded, unless a contract exists.[xi]  Second, while the Supreme Court has not conclusively ruled on intern or trainee employee status,[xii] it has, through its analysis issued “factors” in how to determine intern or trainee employee status.[xiii]  Third, the WHD guidelines, implemented by the DOL, are for private employers to determine the employee status of an unpaid intern or trainee.[xiv] The WHD guidelines are an adaptation of the Supreme Court’s analytical factors set forth in Walling v. Portland Terminal Co.[xv] An important difference between the WHD guidelines and the so-called “Walling factors”[xvi] is the manner in which the federal courts have interpreted each.  The WHD guidelines are not binding on the courts as they are not federal regulations and do not carry with them the force and effect of law.[xvii] Therefore, the WHD guidelines are merely discretionary measures to which the federal courts may adhere.

As a result, the federal courts have created their own tests in determining when an unpaid student intern may be considered an employee.[xviii]  However, none of these tests are uniformly controlling across the nation as common law tests are controlling only in the jurisdiction in which the respective federal court sits.  This ambiguity as to intern or trainee employee status may leave employers ignorant of the law when trying to properly classify interns and trainees.

This article examines the current vagaries of employment law in relation to interns and trainees and seeks to provide private employers with information and solutions to avoid a misclassification.  Part I discusses the FLSA, Supreme Court case law, and the WHD guidelines in relation to the classification of intern and trainee employee status.  Part II explicates the conflicting interpretations among the federal district courts of the accompanying law. Lastly, Part III analyzes the methods in which an employer can avoid misclassification of an intern or trainee in the private sector, given the ambiguity of the law to date.

I. Laws Dictating Employee Status of Student Interns

A)     The Fair Labor Standards Act

The fundamental purpose of the FLSA is to effectively eliminate oppressive child labor, establish a minimum hourly wage, and create a maximum hourly workweek for employees.[xix]  However, Congress is silent to the legality of unpaid student internships[xx]  As a result, the determination of intern employment status falls on the DOL.[xxi] If the DOL investigates and concludes there were employer violations under the FLSA, it will attempt dispute resolution.[xxii]  However, if no resolution is attainable, the affected party must file a claim in a federal district court.[xxiii]

B)     The United States Supreme Court

The United States Supreme Court in Walling v. Portland Terminal Co. serves as the landmark case on employer treatment of trainees and interns. Walling established the general rule that trainees and student interns are precluded minimum wage and overtime protection, unless they are considered student-employees by contractual obligation[xxiv]. The Walling Court also stated that a student or trainee may be eligible for employee status when viewed in the totality of the “Walling factors”[xxv] and created three classes of trainees or interns: (1) those who must be compensated with minimum wage; (2) those who may be paid subminimum wages; and (3) those who need not be paid at all.[xxvi]

C)    The WHD Guidelines

The WHD filled in the statutory gaps by issuing multiple interpretive guidelines applying the six “Walling factors.”[xxvii]  The WHD guidelines are merely an adaptation of the Walling factors[xxviii] and differ from the latter by the manner in which the federal courts apply them.  The Court in Walling reasoned that all the factors are to be viewed within the totality of the circumstance[xxix] and all factors do not need to be present to meet a claim of an employee status.  A totality of the circumstances test weighs “all of the circumstances surrounding [trainee or intern] activities on the premises of the employer”[xxx] in its determination of employee status.  Thus, not all the factors must be present to meet a claim of employee status under Walling.  In contrast, the WHD’s guidelines state that all six factors must be shown in proving that a trainee or intern is not an employee.[xxxi]  Deputy Assistant Administrator Daniel F. Sweeney of the WHD signed and issued the opinion letter addressing the employee status of interns (hereinafter “1996 Opinion Letter”), which stated:

If all of the following criteria are met, the trainees or students are not employees within the meaning of the FLSA:  (1). The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school.  (2). The training is for the benefit of the trainees or students.  (3). The trainees or students do not displace regular employees, but work under their close observation.  (4). The employer that provides the training derives no immediate advantage from the activities of the trainees or students, and on occasion his/her operations may actually be impeded.  (5). The trainees or students are not necessarily entitled to a job at the conclusion of the training period.  (6). The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.[xxxii]

Therefore, under the WHD’s standards a presumption exists that an individual is an employee, unless otherwise proven.  The Fact Sheet also offered a detailed explanation of proper analysis of the factors.[xxxiii]  For example, the fact that training is similar to that given in a vocational school does not necessarily preclude employment status, unless the training is “structured around a classroom or academic experience as opposed to the employer’s actual operations.”[xxxiv]  However, if the intern is receiving educational credit for the internship as part of enrollment in a scholastic program, then intern status will be found.[xxxv]  If the intern does not shadow the employer, but rather “receives the same level of supervision as the employer’s regular workforce, this would suggest an employment relationship, rather than training.”[xxxvi]

The most difficult criterion is determining who reaps the primary benefit of the site.  If the intern is accruing skills utilized for “multiple employment settings,” then intern or trainee status will be found.[xxxvii]  However, if the intern is conducting tasks solely to the employer’s benefit, such as filing, or clerical work, then such acquisition of skills will not necessarily preclude employee status.[xxxviii]

II. Federal District Court Interpretations of Accompanying Law

If the DOL determines a violation of the FLSA has occurred and that dispute resolution is unavailable, a claimant may file suit in federal district court so the court can determine which common law test to apply in assessing employment status.   The federal courts have not agreed upon a test in determining employment status of a trainee or intern.[xxxix]  As a result, three “tests” have arisen among the federal district courts: (1) the “immediate” or “primary benefit” test without regard to the WHD guidelines; (2) an “all-or-nothing” test applying the WHD guidelines,[xl] and; (3) a totality of the circumstances analysis evaluating the WHD guidelines.

 a.     No WHD Guidelines, Only the “Immediate” or “Primary Benefit” Test

The majority of federal courts have generally held that a trainee is not an employee unless there is an “immediate benefit” or “immediate advantage” or “primary benefit” conferred upon the employer, while considering the “Walling factors” in the totality.[xli]  Those jurisdictions embracing the “primary benefit” test do not evaluate the WHD guidelines and look to Walling proper.

The Fourth Circuit embracing West Virginia, Virginia, South Carolina, North Carolina, and Maryland[xlii] generally has disavowed the WHD guidelines and considered the “Walling factors” in determining intern or trainee status.[xliii]   Notably, the Fourth Circuit in Wirtz v. Wardlaw established the Wardlaw test in 1964: its own version of the Walling factors.[xliv]  The Court in Donovan v. American Airlines, Inc. commented that the Wardlaw Court had “formulated three criteria: (1) whether the trainee displaces regular employees; (2) whether the trainee works solely for his or her own benefit; and (3) whether the company derives any immediate benefit from the trainee’s work.”[xlv]  The Fourth Circuit’s Wardlaw is one of the few courts to have a set enumerated test, apart from the “Walling factors.”  Thus, intern or trainee classifications in the Fourth Circuit may be subject to the Wardlaw test.

b.     The All-or-Nothing Test

The “all or nothing” test espouses the view that, unless all of the WHD guidelines are met, then the trainee or intern is not an employee under the FLSA.[xlvi]  Essentially, the “all or nothing” test treats the WHD guidelines as though they are elements to a claim.  If one guideline is lacking, then the claimant will not prevail and will not be awarded the relief sought.  The federal courts of the Fifth Circuit, involving the districts of Louisiana, Mississippi, and Texas[xlvii] advocate the “all or nothing” approach.

c.    The Totality of Circumstances Test

The Tenth Circuit, embracing the districts of Colorado, Kansas, New Mexico, Oklahoma, Utah, and Wyoming,[xlviii] applies the totality of circumstances test.  In 1993, the Tenth Circuit Court in Reich v. Parker Fire Protection District rejected an “all or nothing” interpretation of the WHD Guidelines and instead employed a totality of circumstances approach in finding that plaintiffs-firefighter trainees were not employees.[xlix] After assessing each of the six guidelines in the totality of circumstances, the Court determined that only one—the expectation of employment—yielded any finding of employment status.[l]  The Reich Court reasoned that no language in previous Administrator decisions or Wage and Hour opinions had ever denoted that all factors must be met prior to gaining employment status.[li]  Rather, the Court asserted that the DOL’s six-factor test and Walling’s factors were to be construed in the totality.[lii]

Additionally, the Northern District of California also utilizes the totality of the circumstances test in its decisions.  In 2010, the Northern District of California in Harris v. Vector Marketing Corp. followed the reasoning of the Reich Court[liii] and analyzed whether the trainee site was to the primary benefit of the employer or to the trainee.[liv]  The Court noted that the WHD advised that the trainee benefits from the training site in order to preclude employee status.[lv]  However, the Court noted that each of the factors should not be “rigidly applied,” further endorsing its application of the totality of circumstances approach.[lvi]  Thus, proper classifications in the Tenth Circuit or Northern District of California may be analyzed under the totality of the circumstances.

III. EMPLOYERS: Preventing Misclassification of Interns and Trainees

Employers may unknowingly utilize interns as resources and fail to pay wages due to the lack of clarity in the law.  Courts have developed individualized tests to their discretion either applying the rationale of the WHD guidelines or the Supreme Court’s Walling.  Since the federal courts’ rulings are controlling depending on the jurisdiction, employers must carefully comply with either of the tests in properly classifying an unpaid intern or trainee.

Employers should monitor the legal climate of the jurisdiction within which they practice, as the law varies in respect to the geographic location, or jurisdiction.  Depending on the jurisdiction in which a private employer resides and practices, a private employer may utilize one of the three applicable legal test in classifying a prospective employee in the work place: (1) the provision of the FLSA exempting medical interns; (2) the federal common law “primary benefit” test; or (3) the federal common law tests that analyze only the WHD guidelines.

 A.     Applying the FLSA: Exempting Medical Interns

The provision of the FLSA exempting medical interns is uniform within all jurisdictions because the FLSA is a federal statute.  The wage and overtime protection requirements do not apply to a medical intern who is in a medical internship or residency and holds the requisite academic degree.[lvii]  Private employers in the medical profession may consider whether to fully compensate medical interns, while considering the entirety of the “Walling factors” or WHD guidelines, depending on the jurisdiction.

B.     Applying the “Primary Benefit” Test

Courts in the Fourth Circuit, including West Virginia, Virginia, South Carolina, North Carolina, and Maryland[lviii] or the District of Pennsylvania, will more likely apply a “primary benefits” analysis that weighs the rationale of the “Walling factors,” rather than the WHD guidelines.  Essentially, the court in any of these states may determine if the employer or prospective employee reaps the primary benefit from the employment site. If the employer does, then the claimant is an employee.[lix] If the trainee or intern benefits more from the site, then the claimant will probably be considered an intern or trainee.[lx] However, if an employer is in the Fourth Circuit, the Wardlaw test may be relevant in classifying employee status of a trainee: (1) “whether the trainee displaces regular employees; (2) whether the trainee works solely for his or her own benefit; and (3) whether the company derives any immediate benefit from the trainee’s work.”[lxi]

Thus, employers should monitor the activities delegated to the prospective employees in avoiding misclassification.  Overall, if the activity in question is one that could displace other employees, then this factor also weighs heavily in favor of employee status. Moreover, if the prospective employee is functioning independently in the workplace without supervision, then this may be a factor that a WHD investigator may consider as conclusive to employee status. That is, if the prospective employee requires considerable training from an established employee or supervisor to the detriment of the workplace’s functioning, then employee status may be denied.

C. Applying Only the WHD Guidelines

Due to the fact that the WHD guidelines are not controlling federal regulations, the federal courts’ interpretation of the WHD guidelines is what actually instructs employers on proper classification of interns and trainees.  In certain jurisdictions, federal courts analyze only the WHD guidelines.  Therefore, employers may need to apprise themselves solely on the WHD guidelines.  Again, employers should be aware that certain jurisdictions apply only the WHD guidelines in either: (1) the “all or nothing” test or the (2) totality of the circumstances test.

In the Fifth Circuit, which includes the districts of Louisiana, Mississippi, and Texas,[lxii] the WHD guidelines are analyzed under the “all or nothing” test.  Basically, these states treat the WHD guidelines as though they were elements to a claim.  If a claimant does not meet all of the guidelines, then he or she will not prevail in asserting employee status.  However, in the Northern District of California and the Tenth Circuit, including Colorado, Kansas, New Mexico, Oklahoma, Utah, and Wyoming,[lxiii] courts may analyze the WHD guidelines under the totality of the circumstances of the work place situation.

Conclusion

WHD investigator Nancy J. Leppink has admonished for-profit employers that interns would qualify as unpaid volunteers only in very rare circumstances.[lxiv]  Hence, unless employers are certain that their interns or trainees meet the WHD guidelines and interpretations[lxv] therein, an hourly wage or stipend is a protective measure to prevent against DOL investigations.  To date, the ambiguity of the law regarding interns may result in employers inadvertently violating the FLSA.  Therefore, employers should stay abreast of the DOL opinion letters as the DOL revises its policies constantly to meet the needs of the constituency. The DOL website affords employers an opportunity to register for timely updates of new rulings and interpretations by the WHD.[lxvi]  The DOL revises its opinion letters periodically, as the labor and employment area of law is constantly evolving.  Thus, a change in law may cause a change in policy, or a change in policy may cause the courts to interpret the guidelines consequent to any amendments.ℵ

Bernice Bird is a fourth year, part-time law student at the Barry University School of Law in Orlando, Florida. She served as the Note and Comment Editor on the Barry Law Review. She is anticipated to graduate with a J.D. from Barry University School of Law in May of 2012. Prior to enrolling in law school, Ms. Bird graduated summa cum laude with a Master’s in Counseling Psychology from the Florida International University in Miami, Florida, in December of 2007. Ms. Bird earned a provisional license from the State of Florida and practiced as a Registered Mental Health Intern until September of 2009.

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